Asian currency index declines to five-year low on slowing growth

[TAIPEI] A measure of Asian currencies dropped to a five-year low as South Korean data added to signs regional growth is slowing, just as a looming US interest-rate increase may spur capital outflows.

South Korea's won led losses as a report showed the economy expanded 2.2 per cent in the three months through June, missing estimates and decelerating for a fifth straight quarter. Asian exports are already contracting as growth falters in China, the top destination for many of the region's manufactured goods. Global funds have cut their equity holdings in six of eight Asian markets tracked by Bloomberg in July.

"There's a shift in investor interest from Asia to places like Europe due to growth considerations and expectations for higher yields," said Saktiandi Supaat, head of foreign-exchange research at Malayan Banking in Singapore. "Growth fundamentals seem a bit weak for Asia." South Korea's won fell as much as 1.1 per cent to a three- year low against the dollar, followed by a 0.4 percent loss in Malaysia's ringgit. Thailand's baht dropped 0.2 per cent and came close to breaking the 35 level for the first time since 2009. Indonesia's rupiah declined to the weakest since the Asian financial crisis that roiled markets in 1997-98.

Falling commodity prices are also weighing on raw-material exporters such as Malaysia, whose currency is Asia's worst performer this year amid a slump in Brent crude. The Bloomberg Commodity Index slid Wednesday to the lowest close since 2002, dragged down by a plunge in gold.

The Bloomberg-JPMorgan Asia Dollar Index, which tracks the region's 10 major currencies, was little changed after earlier falling as much as 0.2 per cent to a five-year low.

Growth in China, the region's largest economy, is projected to slow to 7 per cent this year, the least since 1990. Overseas investors sold a combined net US$2.5 billion of shares in South Korea and Taiwan this month, both of whom count China as their biggest export markets.

Elsewhere Thursday, India's rupee dropped 0.2 per cent and the Philippine peso fell 0.3 per cent. Taiwan's dollar depreciated 0.3 per cent, while the yuan and Vietnam's dong were both little changed at 6.2095 and 21,818, respectively.

BLOOMBERG